Cisco Systems of San Jose, No. 2 of the 50 largest stocks on Nasdaq by market value in March 2000, has fallen 66 percent since then, showing that once a stock peaks and falls it's difficult to make a comeback.

Photo: Deanne Fitzmaurice

Cisco Systems of San Jose, No. 2 of the 50 largest stocks on Nasdaq...

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In 1999, before the dot-com bust, Intel, above and below, was reinventing itself as an Internet company and opened a new data center at its headquarters in Santa Clara. Since March 2000, the company's stock has fallen 55 percent, according to Ned Davis Research.

Photo: Liz Hafalia

In 1999, before the dot-com bust, Intel, above and below, was...

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In 1999, before the dot-com bust, Intel, above and below, was reinventing itself as an Internet company and opened a new data center at its headquarters in Santa Clara. Since March 2000, the company's stock has fallen 55 percent, according to Ned Davis Research.

Of the 50 largest Nasdaq stocks (by market value) on March 10, 2000, when the Nasdaq composite index hit its all-time high, only eight are trading higher now than they were then, according to data from Ned Davis Research.

Twenty were acquired or went out of business. The remaining 22 are still below their March 2000 price, although three of them - Microsoft, Oracle and Dish Network - would have provided investors a small total return if you include dividends received over the past 14 years.

Cisco, No. 2 at the time, is 66 percent lower than it was back then. Intel is 55 percent lower.

This sobering history highlights the perils of momentum investing - or buying stocks just because their price is going up, regardless of their fundamentals or valuation.

The question now is whether the big momentum stocks of the past year have had their day in the sun or are just taking a break in the shade.

Tesla Motors and Netflix have fallen 22 and 24 percent, respectively, from their recent peaks. LinkedIn has tumbled 31.5 percent and Twitter is 38.6 percent below its all-time high.

Among 3-D printing companies, 3D Systems has tumbled 50 percent and ExOne is down 61 percent. In the cloud-computing realm, NetSuite and Workday are both down 31 percent and Concur Technologies is down 28 percent.

Biotech hit hard

The biotech sector has also gotten slammed; even stalwart Gilead Sciences is 20 percent below its high.

If history is any guide, many of today's highfliers will fall by the wayside, some will endure as companies but never surpass their peak stock prices, and some will reward shareholders willing to step in.

EBay, Apple and Amazon are all trading above their March 2000 prices. EBay went on to buy PayPal, which became a big profit generator. Apple invented the iPad and iPhone. Amazon "remade itself into a cloud company" and is trading like one, says Fred Hickey, editor of the High-Tech Strategist. (It has fallen almost 20 percent from its all-time high in January.)

Picking winners hard

But in 2000, it would have been very hard to pick winners from the wreckage of the tech bust. And after getting burned so badly, it was years before investors were willing to embrace tech stocks.

"In the short run, when you have a big sell-off like this, historically the stocks that have gotten beat up the most are not the ones that are likely to come back immediately," says Bruce Simon, chief investment officer with City National Rochdale. "There needs to be a change in sentiment around those stocks. People looking at losses are less willing to buy in and double down on stocks they are underwater on."

Doug Ramsey, chief investment officer with the Leuthold Group, predicts the fallen glamour stocks "will have a serious bounce back and begin to underperform again after the bounce."

Although LinkedIn and Twitter peaked late last year, the sell-off in speculative companies accelerated after March 5, when the Nasdaq composite index hit 4,358, its highest close since April 2000.

Since March 5, the tech-heavy Nasdaq index is down 5.3 percent but the Standard & Poor's 500 index is down only half a percent as investors have rotated into more conservative sectors of the market, such as utilities and consumer staples.

A similar thing happened after the Nasdaq peaked in 2000. Despite the parallels today, valuations never got as extreme as they did in the dot-com era.

"The whole tech bubble was a once in a lifetime thing. We are experiencing a faint echo of that period," Ramsey says.

There are still companies selling at ridiculous valuations, Hickey says. Amazon is trading at 575 times last year's earnings and 174 times expected earnings. NetSuite is trading at 312 times expected earnings.

But there are not as many grossly overvalued companies today as there were in 2000, he says. "Trading volumes are also lower. It is a far more limited mania today."

Hickey predicts that the lost-momentum stocks won't come back until the Fed launches another round of quantitative easing, and that won't happen "until there is real damage. The Fed can't come in and save the markets just because Twitter has lost (a third) of its value when the market is down only 2 or 3 percent. It's going to take a double-digit decline that has impact on the economy."

Some may never come back. Hickey is dubious about 3-D printers. "All they are making is prototypes and plastic tchotchkes. It's years down the road, it's a concept."

Shakeout healthy

Karl Mills, president of Jurika, Mills & Keifer, says the current shakeout is healthy because "you are eliminating a lot of the froth and speculation from these more growth-oriented names."

The difference between now and 1999 is that companies such as "Netflix, Twitter and Tesla are disrupting the status quo. There is a convergence of factors occurring that is unlike any other time in history. When you combine social, broadband and mobile, you are making all the world's knowledge accessible to 5 billion people around the world in the palm of their hands. I think that allows for a lot of things to happen much faster than in the past," he says.

"The baton could change hands. It's hard to tell who the winners are going to be. Google and Facebook seem to have durable advantages," he says. But then again, Cisco was also a mainstream company in 1999. It was just trading at unsustainable valuation.

The perils of buying at the peak

Of the top 50 Nasdaq stocks (by market value) on March 10, 2000, only 30 still trade. This shows their price change since then.